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The Cost of Pay-TV vs. Cord-Cutting

This week Luke Bouma over at Cord Cutters News did a great job picking apart a story published by Quartz claiming we cord-cutters aren’t saving any money. Essentially, Quartz was pushing the idea that cord cutting is just as expensive as cable using a study that wasn’t comparing apples and apples.

While anyone who has cut the cord knows it can save considerable money relative to pay-tv, I want to prove this using actual numbers and showing my work.

The Cost of Pay TV

Finding the pay-tv side of the equation is fairly straightforward. Market research firm Mintel stated in a 2015 report that the average cost of pay-TV bundled with internet access was $132 per month. If we assume a cable bill has 4% inflation (which is a low estimate,) the 2017 cost of a “double-play” bundle would be $148 per month.

This number seems to be in line with not only with other studies I’ve seen but the anecdotes of commenters on this website. The 2015 number is also in line with a 2014 story I wrote showing real-world examples of how the pay-TV industry hides the real cost of subscriptions behind attractive promotional pricing.

Ultimately, there is some strong quantitative and qualitative evidence that $148 is a good price estimate for the monthly cost of cable TV and internet.

The Cost of Cutting the Cord

The cost of internet varies in the U.S. based on the number of ISPs offering service in a given area. Generally, where there is competition, there is lower pricing. While you can find great internet only plans for less than $50 per month, the average tends to be a bit higher. A recent study put’s the average internet costs in the U.S. at $66.17 per month.

Finding a good comparison price for internet is easy. The difficult part is estimating the cost of streaming services when there are so many out there to choose from. While every “hot take” on cord-cutting being expensive assumes a person will buy every service out there, that is not really what is happening. In fact, only about 25% of households without cable decide to purchase a live TV streaming service.

According to Nielsen, there are roughly 21.7 million households without pay-TV. Subscriber estimates from Leichtman Research Group show about 1.7 million and 800,000 subscribe to Sling TV and DirecTV respectively. Benjamin Swinburne, a Morgan Stanley analyst, estimates Hulu Live has somewhere in the vicinity of 250,000 subscribers while YouTube TV has 400,000. Other analysts see PlayStation Vue around 670,000 subscribers, while other subscribers (FuboTV, Philo, etc.) pulling in around 300,000 subscribers.

So if we make a few assumptions about the tier subscribers for each of these services we can estimate the total dollar amount spent on these services.

Let’s assume the leftover 300,000 pays around $35 each for a total of 10.5 million.

All together that is $141.5 million those without cable spend on live streaming services. However, that isn’t all we need to account for when it comes to cord cutting. What about premium services like HBO and Showtime. What about Netflix, Amazon Prime, and other on-demand services. Don’t fret, I have another study. This study from CG42 surveyed cord cutters to get a breakdown of streaming services used. According to their numbers, 93% cord cutters used Netflix, 55% used Amazon Prime, 38% used Hulu’s on-demand version, 28% had HBO, 11% had showtime and 7% used CBS All Access.

Of Nielsen’s 21.7 million cord cutters, only 15.3 million use broadband to watch TV. So we can estimate a cost that all cord cutters pay for these service based on these numbers.

and let’s throw in another 10 million for Starz and other services I can’t think of

If we take these services and add them to the $141.5 million we calculated for live TV services we have $286.7 million.

Now more than half of the households in the U.S. have Netflix and Amazon Prime which means that 50% of folks that cut the cord already have the service. It wouldn’t be fair to count a subscription to either of these if the person had this service prior to cutting the cord. To account for this I’m going to weight these service by 50%.

This brings our total costs of all subscriptions to $399.67 million. This is a decent estimate of what the 15.3 million cord-cutters with broadband spend monthly on streaming services. If we break that down, each cord cutting household will spend an average of $26.11 on services.

If we add that to the $66.17 average cost of broadband access in the U.S, the total monthly cost for a cord cutters TV and internet is $99.28. This is an average saving of $48.72 every month. That is nearly $600 a year.

What Cord-Cutters Really Save

While our numbers exercise showed the average internet and TV cord cutting solution can save around 33% compared to cable, that isn’t the whole story.

Let’s not forget, according to Nielsen we have 6.4 million households that just watch over the air TV on an antenna in addition to the 15.3 with broadband access. If we factor the 6.4 million households that essentially watch TV for free, the average household without cable only pays only $65.08 per month. That’s a saving of about $1000 a year over subscribing to cable.

Keep in mind these are averages. Your savings will vary based on where you live. For example, in my area, folks can pick up a 100 Mbps internet connection for $39.99 per month. Using an antenna, Amazon Prime and Hulu you can cut the cord for under $60 per month.

Also, note that nearly all streaming services do not require yearly contracts. Therefore, cord-cutters have the ability to add and drop services based on seasonal programming. This can lower costs even more. In today’s media, a contrarian hot take will get clicks so you’re going to see the anti-cord-cutting article every now and again. However, the numbers show cutting the cord can save you money. How much is up to you.

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I'm Dennis Restauro. After working 20 years in IT, I've noticed the tech community to be a bit insular. I started Grounded Reason to change that. Here, we share information on how technology can save us money and change everyone's life for the better.

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